Question

The ledger of Chan Rental Agency on March 31 of the current year includes the following three accounts before adjusting entries have been prepared. Insurance Expense (12-month policy purchased on 1/1) Supplies Expense (supplies purchased 1/1) Rent Revenue (12 months of rent was received in advance on 1/1) $ 2,700 2,100 6,975 Post the necessary 1st QRT ADJUSTING ENTRIES on March 31 directly into T accounts: 1. Insurance expires at the rate of $225 per month. Insurance Expense 2,700 1/1 Prepaid Insurance Reverse: yes or no 2. On March 31, Supplies on hand total $637. Supplies Expense 1/1 2,100 Supplies

Answer 1

1) Insurance expires at the rate of $225 per month: Insurance Expense $2,700 3/31 1/1 $2,025 ($225 x 9 months --> Insurance at $225 per month for 9 months to expire next year] 3/31 $675 Prepaid Insurance $2,025 3/31 [As calculated above] 3/31 $2,025 2) On March 31, Supplies on hand total $637: Supplies Expense $2,100 3/31 $637 [Balance of supplies on hand as unused] 1/1 3/31 3/31 $1,463 $1,463 [$2,100 - $637 --> Out of total balance, suplies were utilized except $637] Supplies $637 1/1 3/31 $637 [Balance of supplies on hand]

3) On March 31, 3 months of revenue has been earned: Rental Revenue $5,231.25 1/1 3/31 $6,975 3/31 $1,743.75 ($6,975 x (3/12) --> 3 months' rental revenue was earned out of 12 months' advance] Unearned Rental Revenue 3/31 $5,231.25 ($6,975 x (9/12) --> 9 months' rental revenue is yet to earn out of 12 months' advance] 3/31 $5,231.25